Trade credit is a financial arrangement where a buyer can purchase goods or services from a seller and pay for them later. This allows businesses to manage their cash flow more effectively, as they can receive products upfront without immediate payment. It is commonly used in business-to-business transactions. Typically, trade credit terms specify a period, such as 30, 60, or 90 days, during which the buyer must settle the payment. This arrangement can help businesses maintain inventory and meet customer demand without straining their finances. However, late payments may lead to penalties or damage relationships with suppliers.